Budget meetings begin with basics

“Changes in the economy have an impact on the water district,” David Barnum, chief financial officer for the Ramona Municipal Water District (RMWD), said at the first in a series of budget workshops. “We anticipate this year and possibly next year to be a difficult time in terms of water for Ramona.”

During the Feb. 24 workshop, Barnum reviewed how money is generated by the district and distributed to the various funds established. Barnum’s role, and that of the RMWD staff, is to provide the board with factual and up-to-date information.

The first budget workshop was designed as an introduction to current situations in the district and financing proposed plans for the future.

“The goal is to continue to provide the level of service our customers expect, but at the lowest possible rate,” said Barnum.

The impact of small expenditures has an impact on rates. For example, if water rates have a $100,000 increase in expense, or a $100,000 decrease in revenues, the impact will be an increase of 2 cents on water rates, Barnum said.

“Revenues in the district are generated from rates and property taxes,” Barnum said. “Rates are established two times each year.”

RMWD buys water from the San Diego County Water Authority (CWA) and the Metropolitan Water District (MWD). Traditionally, the CWA and MWD raise their rates on Jan. 1 of each year.

“What is critical is that we pass only that rate increase through to our customers,” stated Barnum.

A potential rate increase to RMWD customers is a three-fold process that must comply with Proposition 218, which requires RMWD to mail a notice to all affected rate payers of a public hearing for individuals to protest the proposed increase. If 51 percent of the rate payers come forward during the formal hearing, the rate increase fails.

“Last year the district mailed 10,415 rate increase letters and received only two formal protests,” said Barnum.

It is expected that RMWD will mail notices of proposed rate increases in April with a public hearing scheduled for June 23.

A portion of the budgeting process includes accounting funds set up for water, fire, parks, sanitation, capital improvements and capital replacement.

“We do not make a profit, receive no dividends, and have no shareholders,” said Barnum. “To help keep rates down, we budget our expenditures and budget our revenues to match them.”

One of the sources of revenue for the district is property taxes, Barnum said, noting that RMWD gets a small portion of the total property taxes.

“Last year, RMWD received $5.5 million from that discretionary property tax,” he said. “We use that money to help pay for five outstanding water debt loans,and fire operations.”

Last year, 70 percent of this money was spent for those purposes and 30 percent remained for projects proposed by the district, Barnum said.

The amount of funding RMWD could receive this year will be affected by the current economic spiral and unemployment rates. Barnum believes that the low housing market could impact RMWD in the form of delinquencies on water bills, as well as property tax revenues declining.

In terms of the stock market, Barnum stated, “Our (RMWD) investments are secure and have not declined in value.”

However, public Employee Retirement (PERS) investments, which include stocks, bonds and real estate investments, have declined by 30% in the past year.

“If the PERS fund balance does not recover, it could affect the RMWD 2011-2012 budget,” said Barnum.

Another issue facing the district is the credit crisis, which provides fewer lenders to borrow money from and tighter requirements. This is important in terms of how the board might want to consider the funding of certain projects, Barnum explained.

“We do not have enough discretionary income to do all these projects,” Barnum said. “There will have to be a lot of thought as to the timing, financing and priority of these projects, as there has been no money set aside for their funding.”

It is expected that the cost of water and power could be increased as much as 20 to 30 percent.

“Much of this is due to the drought, and we have no control over the cost of purchasing this water,” Barnum stated.

In addition, San Diego Gas and Electric (SDG&E) expects to increase electric rates by approximately 10 percent. Currently RMWD pays $2 million to $3 million per year to pump water to the district.

“Based on the challenges we are facing because of the budget, the general manager has directed staff to target 10 percent cuts in operating funds this year,” Barnum said.

There will be no new positions available, and the general manager anticipates that vacant positions will remain unfilled. In addition, temporary labor will be eliminated.

It is suggested that only critical equipment purchases be considered and all projects be prioritized and budgeted appropriately.

Additional workshops will cover a draft of expenses and revenue projections, a projects workshop, updating the board on the budget and staffing, and a final expenses, revenues and rates workshop. A public hearing on the budget will be for June 23.

In other business last Tuesday, a presentation was made to the board by the Southern California Water Voice of Consumers at the Local Level (SoCal VOCAL). Dan McMillian and Augie Caires, board members of the Padre Dam Municipal Water District, asked RMWD to consider joining VOCAL to represent consumer’s interests at the state and federal levels.

“We would like to see an organization where issues that are representative of the needs of the retail agencies in Southern California are discussed, advocated and communicated to the state and federal decision makers,” said McMillian.

Fallbrook, Olivenhain, Otay and Padre Dam water districts have joined VOCAL.

“Bond issues are being approved by all of us thinking that we are approving water bonds,” Caires said. “In fact, water is going to environmental or other special interest groups and very little, if any, is getting to the retail level.”

“Legislators typically do not understand water issues,” said Caires. “What we want to do is educate them.”

According to McMillian and Caires, there are several benefits for districts that join VOCAL.

“We will be able to find state, federal and local grant money to divide with participants,” McMillian said. “Your elected officials’ voices would be heard more directly, and VOCAL could organize local, nonpartisan legislators to form a SoCal Water Legislators group to better fight water issues in Sacramento.”

VOCAL is in its early stages of development, and the intent is to try to get 20 districts to join with an initial investment of $10,000 per agency.

“This money will be used to form the organization, draft bylaws, elect officials, hire an administrator and a legislative activist. We want to expand to include all local agencies within the Metropolitan Water District of Southern California service area,” said McMillian.

Caires said, “We think this is a good avenue as retail water agencies desperately need an effective voice to work on common interests, while focusing on those crucial to the consumer.”

McMillian and Caires invited representatives from RMWD to attend a March 17 meeting of VOCAL.